An extended self-organizing map network for market segmentation—a telecommunication example Melody Y. Kiang a, * , Michael Y. Hu b , Dorothy M. Fisher c a Information Systems Department, College of Business Administration, California State University, 1250 Bellflower Blvd., Long Beach, CA 90840-8506, United States b Graduate School of Management, Kent State University, United States c Information Systems Department, School of Business and Public Administration, California State University, Dominguez Hills, United States Received 22 May 2003; received in revised form 2 September 2004; accepted 9 September 2004 Available online 11 November 2004 Abstract Kohonen’s self-organizing map (SOM) network is an unsupervised learning neural network that maps an n -dimensional input data to a lower dimensional output map while maintaining the original topological relations. The extended SOM network further groups the nodes on the output map into a user specified number of clusters. In this research effort, we applied this extended version of SOM networks to a consumer data set from American Telephone and Telegraph Company (AT&T). Results using the AT&T data indicate that the extended SOM network performs better than the two-step procedure that combines factor analysis and K-means cluster analysis in uncovering market segments. D 2004 Elsevier B.V. All rights reserved. Keywords: SOM neural network; Extended SOM network; Factor analysis; K-means cluster analysis; Market segmentation 0167-9236/$ - see front matter D 2004 Elsevier B.V. All rights reserved. doi:10.1016/j.dss.2004.09.012 1. Introduction Market segmentation refers to the process of forming groups of consumers, whereby the groups are homogeneous in terms of demand elasticities and are accessible via marketing strategies [13]. A market- ing manager can select and effectively execute seg- ment-specific marketing mixes. The value of performing market segmentation analysis includes positioning the product in the marketplace properly, identifying the appropriate segments for target market- ing, finding opportunities in existing markets, and gaining competitive advantage through product differ- entiation. The bottom line is to increase profitability by enabling firms to target consumers more effectively. Although it was introduced into the academic market- ing literature in the 1950s, market segmentation continues to be an important focal point of ongoing research and marketing practices [4]. Most of the academic research in market segmentation has been in * Corresponding author. Tel.: +1 5629858944; fax: +1 5629854080. E-mail address: mkiang@csulb.edu (M.Y. Kiang). Decision Support Systems 42 (2006) 36 – 47 www.elsevier.com/locate/dsw